Taking it to the competition: supply chain management as a strategic advantage

 

Increased customer demands and pressure on costs are issues facing every business. Cranfield University Emeritus Professor, Martin Christopher explains why a strategic approach to supply chain efficiency could make a difference to the business bottom line.

Dr Martin Christopher is Emeritus Professor of Marketing and Logistics at Cranfield University School of Management. His work in the field of logistics and supply chain management has gained international recognition.

Why is supply chain management important?

Efficient supply chain management is absolutely critical. If businesses get it right, it’s a source of competitive advantage. If they get it wrong, they’re at a huge disadvantage. There are two trends that have coincided to increase the importance of efficient supply chain management:

  1. Outsourcing
    Over recent years many companies have outsourced activities they used to do in-house. As a result, a growing proportion of every pound businesses earn goes to suppliers.
  2. Globalisation
    In many cases supply chains have got longer. If, for example, you’re sourcing offshore, the amount of inventory you need to maintain availability in your final market tends to increase.

Both of these trends have a significant and direct impact on costs. A further issue is around customer demand for business responsiveness and agility. Agility in your supply chain means you can do things faster and to a particular customer requirement. So, whilst not directly cost-specific, get that wrong and you’ll feel the impact on your bottom line.

Can supply chain improvement work for all businesses?

At its most basic, managing your supply chain more efficiently and effectively will affect your business in terms of both cost and value. That applies across all businesses. There’s a common misconception that supply chain management is the remit of manufacturers. Increasingly, we’re coming to recognise that service industries can benefit too and, with a significant proportion of UK GDP coming from the service sector, that’s an area that can’t be ignored. Service industries, for example, also have inventory in numerous forms (branches, opening hours, staffing levels) and they also outsource functions to suppliers.

How can I increase efficiency in my supply chain?

The most effective way to manage your supply chain is to efficiently manage the internal and external interfaces within it. Very often, lack of communication has hindered this. That has meant that businesses have to forecast customer requirements and build inventory to buffer themselves against uncertain demand. If businesses communicate and plan requirements jointly, that buffer isn’t required. Businesses can instead move to a state of ‘vendor managed inventory’, where the supplier becomes responsible for the automatic replenishment of the customer’s inventory. As a result, businesses do more with less.

What are the greatest challenges to efficient supply chain management?

“Efficiency in your supply chain means you can do things faster and to a particular customer requirement.”

Lack of trust

The biggest challenge to more efficient management of the supply chain is having the correct mindset. Traditionally, businesses have tended to keep both suppliers and customers at arm’s length. In the past, this lack of trust and the existence of an often adversarial relationship has challenged efficiency in the supply chain. Now though, we’re seeing some major breakthroughs with lots of companies working more closely together. The car industry is a great example where that closer relationship is leading to automatic replenishment and greater efficiency across the supply chain. The results are clear to see.

Organisation

Another challenge is that many businesses are still functionally organised, rather than structured around supply chains.

As an example, in the early years of outsourcing, decisions were often taken on a very narrow definition of cost. If businesses had taken the real cost view or understood the total cost of ownership, they’d have factored in the additional inventory required and the longer lead times that make you less responsive. What we’re seeing now is quite a few companies reversing those offshoring decisions because they recognise that, in a fast-moving market where the customer wants rapid-response, an agile supply chain makes a real difference.

“The winners in supply chain management are typically those that design their supply chains from the customer backwards.”

How to make supply chain management work

The winners in supply chain management are typically those that design their supply chains from the customer backwards. Truly smart companies have developed different supply chain strategies for different market or channel needs. One of the key words here is ‘strategy’. Iconic leaders in efficient supply chain management, such as Apple or Zara, have strong connections between their overall business strategy and their supply chain strategy.

In today’s economic climate, businesses are having to find new ways to improve both costs and performance in the marketplace. We’ve had the manufacturing revolution and the quality revolution. The last remaining opportunity for businesses to improve costs and performance is to improve the efficiency and effectiveness of their supply chains.

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